Chapter 1 Flashcards Preview

Accounting 3000 > Chapter 1 > Flashcards

Flashcards in Chapter 1 Deck (33):

What are the two key variables in an investment decision?

1. Rate of return
2. Uncertainty or risk


How do you calculate the rate of return?

(Share price appreciation + Dividends Received) / Initial Investment


What should financial information help investors and creditors evaluate?

1. Amounts
2. Timing
3. Uncertainty


What does cash basis accounting measure?

Measures difference between cash receipts and cash payments


What is the difference of cash receipts and cash payments?

Net operating cash flow


What does accrual basis accounting measure?

Measures difference between revenues and expenses


What is the difference of revenues and expenses?

Net income or loss


What is the hierarchy of stand-setting authority?

1. Congress
2. SEC
3. Private Sector > FASB


What are the key aspect of Sarbanes-Oxley Act?

1. Oversight board
2. Corporate executive accountability
3. Non-audit services
4. Retention of work papers
5. Auditor rotation
6. Conflicts of interest
7. Hiring of auditor
8. Internal control


What is a principle-based or objective-based approach to standard setting?

Places importance on professional judgement as opposed to following a list of rules


What is the conceptual framework?

The conceptual framework provides an underlying foundation for accounting standards. It guides the selection of events to be accounted for, how to measure these events, and a means of summarizing these events to interested parties


What are the three elements of relevance?

1. Predictive value
2. Confirmatory value
3. Materiality


What are the three elements of faithful representation?

1. Neutrality
2. Free from error
3. Completeness


What are the six elements of decision usefulness?

1. Relevance
2. Faithful representation
3. Comparability
4. Timeliness
5. Verifiability
6. Understandability


What is the economic entity assumption?

It is the assumption that presumes that economic events can be identified with a specific economic entity


What is the going concern assumption?

It is the assumption that presumes that an economic entity will continue to operate indefinitely


What is the periodicity assumption?

It is the assumption that allows the life of an economic entity to be divided into artificial time periods to provide timely information


What is the monetary unit?

The monetary unit used in U.S. financial statements is the U.S. dollar


What is meant by disclosure?

The process of including additional pertinent information in the financial statements and accompanying notes


When should a company recognize revenue?

When goods or services are transferred to the customer for the amount the company expects to receive in exchange for those goods or services


What is historical cost?

Original transaction value adjusted for depreciation and amortization


What is net realizable value?

The amount of cash in which an asset is expected to be converted in the ordinary course of business


What is present (or discounted) value?

Calculated by removing the time value of money from future cash flows


What is fair value?

The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date


What is the market approach to fair value?

Valuation based on market information


What is the income approach to fair value?

Estimates future amounts and then mathematically converts those amounts to a single present value


What is the cost approach to fair value?

Estimate the amount that would be required to buy or construct an asset of similar quality and condition


What is the full disclosure principle?

Requires that financial reports should include any information that could affect the decisions made by external users


Where are parenthetical or modifying comments placed?

On the face of financial statements


What are disclosure notes for?

Articulate additional insights about the financial statements


What are supplemental schedules and tables?

Report more detailed information than is shown in the primary financial statements


What is the revenue/expense approach?

Revenue and expenses are recognized and measured first followed by asset/liabilities


What is the asset/liability approach?

An asset/liability approach emphasizes recognition and measurement of assets and liabilities first, followed by the recognition of revenues, expenses, gains, and losses